Investors Investigate Rental and PPA models For Solar-Diesel-Hybrid Power Plants for Mines

Solar power, without initial investment, is becoming a reality for mining companies.
Published: Mon 26 Jan 2015

Solar-diesel-hybrid power plants are ideal for remote mines since they generally have the necessary land, have a high load during the day and often struggle with high electricity prices from diesel generators.

According to a report, Solar-diesel-hybrid power plants at mines: Opportunities for external investors, carried out by THEnergy, solar is often up to 70% less expensive than electricity generated by diesel generators.

While many mines are crippled by high operational costs, the report suggests that the investment in solar plants has to be made when the plant is built, ideally before the first MWh of electricity is produced.

External investors critical for solar-diesel hybrid power plants

Various types of external investors have already entered the renewable energy business, explains the report. The development is mainly driven by the low risk of the investment as solar energy is technically mature and generates predictable income, especially if the market risks are covered by feed-in tariffs or long term power purchase agreements (PPAs) to a large extent.

Even if there is a long-term PPA in place, the counter-party risk is substantial due to the fact that normally the mine is the only possible off-taker of the electricity in remote locations. If the mine does not fulfill the contract, for instance in the event of insolvency, the generated electricity cannot be sold easily.

Mitigating the risk for external investors

The THEnergy study shows several solutions of mitigating the risk for external investors.

One solution is to make the solar panels mobile or similar. Solar panels are mounted to sub-structures of the mounting-system and containerized. The costs for dismantling the solar plant and reinstalling it in different locations are thereby decreased.

From a financial perspective, risk can be mitigated by a higher rental rate or electricity price during the first years of operation. Another solution is for the mine to pay a price that is equivalent to the price of electricity from the diesel generators during the first years. Once the solar plant is paid off, the power price or rental rate can be reduced and the mining company and the investor can share the additional cost savings of the project. In any case, the rental company or power provider has to perform a resource-based and market-based due diligence of the mining operations.

In another scenario the mining company co-invests in the solar power plant and carries more liability for the market risks.

Finally, the external investor can try to close contracts in which the parent company is the contract partner or guarantees for the fulfillment of the rental or power purchase agreement.

First rental and PPA solutions are already available in the market. A growing number of solar companies and investors view the mining industry as a reliable partner for rental or PPA models.

“This development is considerably likely to accelerate the extension of solar applications at mines”, says Dr Thomas Hillig, founder of THEnergy.

Further reading

THEnergy -Solar-diesel-hybrid power plants at mines: Opportunities for external investors